A Summer Training Project Report
ON
“A STUDY ON MUTUAL FUND COMPANIES IN INDIA WITH SPECIAL REFERENCE
TO RELIANCE MUTUAL FUND AND UTI MUTUAL FUND.”
IN
SUBMITTED TOWARDS THE PARTIAL FULFILMENT OF THE MASTER’S
DEGREE IN BUSINESS ADMINISTRATION 2009-2011, AFFILIATED TO GAUTAM
BUDDH TECHNICAL UNIVERSITY (GBTU), LUCKNOW
UNDER THE GUIDANCE OF:
Mr. Sanjeev Kumar Shukla
(Cluster Head- Delhi/NCR)
KARVY, Ghaziabad
SUBMITTED BY: SUNIL KUMAR
Roll No.: 0903070054
MBA- 3rd Sem.
SCHOOL OF MANAGEMENT,
INDERPRASTHA ENGINEERING COLLEGE,
GHAZIABAD, 201010
1
DECLARATION
I, SUNIL KUMAR the student of Master of Business Administration, IPEC- Semester 3rd
(2009-11) hereby declare that, I have completed this project on “A STUDY ON MUTUAL
FUND COMPANIES IN INDIA WITH SPECIAL REFERENCE TO RELIANCE MUTUAL
FUND AND UTI MUTUAL FUND.”
The submitted information is true & original to the best of my knowledge.
Student’s Signature
Date:
Place:
(SUNIL KUMAR)
Roll No. 0903070054
2
ACKNOWLEDGEMENT
Before we get into thick of things, I would like to add a few words of appreciation for
the people who have been a part of this project right from its inception. The writing of this
project has been one of the significant academic challenges I have faced and without the
support, patience, and guidance of the people involved, this task would not have been
completed. It is to them I owe my deepest gratitude.
It gives me immense pleasure in presenting this project report on “A STUDY ON
MUTUAL FUND COMPANIES IN INDIA WITH SPECIAL REFERENCE TO
RELIANCE MUTUAL FUND AND UTI MUTUAL FUND.”. It has been my privilege to
have a team of project guide who have assisted me from the commencement of this project.
The success of this project is a result of sheer hard work, and determination put in by me with
the help of my project guide. I hereby take this opportunity to add a special note of thanks for
Mr. Sanjeev Kumar Shukla, who undertook to act as my mentor despite her many other
academic and professional commitments. Her wisdom, knowledge, and commitment to the
highest standards inspired and motivated me. Without her insight, support, and energy, this
project wouldn't have kick-started and neither would have reached fruitfulness.
I also feel heartiest sense of obligation to my Mrs. Anima Mohanty, who helped me in
collection of data & resource material & also in its processing as well as in drafting
manuscript. The project is dedicated to all those people, who helped me while doing this
project.
SUNIL KUMAR
Roll No. 0903070054
3
EXECUTIVE SUMMERY
A mutual fund is a scheme in which several people invest their money for a common
financial cause. The collected money invests in the capital market and the money, which they
earned, is divided based on the number of units, which they hold.
The mutual fund industry started in India in a small way with the UTI Act creating what was
effectively a small savings division within the RBI. Over a period of 25 years this grew fairly
successfully and gave investors a good return, and therefore in 1989, as the next logical step,
public sector banks and financial institutions were allowed to float mutual funds and their
success emboldened the government to allow the private sector to foray into this area.
The advantages of mutual fund are professional management, diversification, economies of
scale, simplicity, and liquidity.
The disadvantages of mutual fund are high costs, over-diversification, possible tax
consequences, and the inability of management to guarantee a superior return.
The biggest problems with mutual funds are their costs and fees it include Purchase fee,
Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There are
some loads which add to the cost of mutual fund. Load is a type of commission depending on
the type of funds.
Mutual funds are easy to buy and sell. You can either buy them directly from the fund
company or through a third party. Before investing in any funds one should consider some
factor like objective, risk, Fund Manager’s and scheme track record, Cost factor etc.
4
There are many, many types of mutual funds. You can classify funds based Structure (openended & close-ended), Nature (equity, debt, balanced), Investment objective (growth,
income, money market) etc.
A code of conduct and registration structure for mutual fund intermediaries, which were
subsequently mandated by SEBI. In addition, this year AMFI was involved in a number of
developments and enhancements to the regulatory framework.
The most important trend in the mutual fund industry is the aggressive expansion of the
foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual
Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India.
Reliance mutual funding is considered to be most reliable mutual funds in India. People want
to invest in this institution because they know that this institution will never dissatisfy them at
any cost. You should always keep this into your mind that if particular mutual funding
scheme is on larger scale then next time, you might not get the same results so being a careful
investor you should take your major step diligently otherwise you will be unable to obtain the
high returns.
5
NEED FOR THE STUDY
The main purpose of doing this project was to know about mutual fund and its functioning.
This helps to know in details about mutual fund industry right from its inception stage,
growth and future prospects.
It also helps in understanding different schemes of mutual funds. Because my study depends
upon prominent funds in India and their schemes like equity, income, balance as well as the
returns associated with those schemes.
The project study was done to ascertain the asset allocation, entry load, exit load, associated
with the mutual funds. Ultimately this would help in understanding the benefits of mutual
funds to investors.
OBJECTIVE:
study some of the mutual fund schemes.
Explore the recent developments in the mutual funds in India.
an idea about the regulations of mutual funds.
6
CONTENTS
SR. No.
TOPICS
1.
COMPANY PROFILE
2.
INTRODUCTION OF MUTUAL FUND
3.
WORKING OF MUTUAL FUND
4.
MUTUAL FUND IN INDIA
5.
RELIANCE MUTUAL FUND vs. UTI MUTUAL
FUND
6.
MUTUAL FUND vs. OTHER INVESTMENT
7.
FUTURE PROSPECT OF MUTUAL FUNDS IN
INDIA
8.
MUTUAL FUND JARGON
9.
RESEARCH METHODOLOGY
10.
FINDINGS AND SUGGESTION
11.
CONCLUSION
12.
QUESTIONNAIRE
13.
BIBLIOGRAPHY
7
CHAPTER:1
COMPANY PROFILE
_______________________________________________________
INTRODUCTION
“Success is a journey, not a destination.” If we look for examples to prove this
quote then we can find many but there is none like that of karvy. Back in the year 1981, five
people created history by establishing karvy and company which is today known as karvy, the
largest financial service provider of India.
SUCCESS SUTRAS OF KARVY
The success story of karvy is driven by 8 success sutras adopted by it namely trust,
integrity, dedication, commitment, enterprise, hard work and team
play, learning and innovation, empathy and humility. These are the values
that bind success with karvy.
8
VISION OF KARVY
To achieve & sustain market leadership, Karvy shall aim for complete customer satisfaction,
by combining its human and technological resources, to provide world class quality services.
In the process Karvy shall strive to meet and exceed customer's satisfaction and set industry
standards.
MISSION STATEMENT
“Our mission is to be a leading and preferred service provider to our customers, and we aim
to achieve this leadership position by building an innovative, enterprising , and technology
driven organization which will set the highest standards of service and business ethics.”
9
THE SUCCESS LADDER
COMPANY OVERVIEW
Karvy was established as karvy and company by five chartered accountants during the year
1979-80, and then its work was confined to audit and taxation only. Later on it diversified
into financial and accounting services during the year 1981-82 with a capital of rs.150000. It
achieved its first milestone after its first investment in technology. Karvy became a known
name during the year 1985-86 when it forayed into capital market as registrar.
10
EVOLUTION OF KARVY
It is well said that success is a journey not a destination and we can see it being proved by
karvy. Under this section we will see that how this “karvy and company” of 1980 became
“karvy” of 2008. Karvy blossomed with the setting up of its first branch at Mumbai during
the year 1987-88. The turning point came in the year 1989 when it decided to enter into one
of the not only emerging rather potential field too ie; stock broking. It added the feather of
stock broking into its cap. At the same time it became the member of Hyderabad Stock
Exchange through associate firm karvy securities ltd and ……..it went on adding services one
after another, it entered into retail stock broking in the year 1990. Karvy investor service
centers were set up in the year 1992. Karvy which already enjoyed a wide network through
its investor service centers, entered into financial product distribution services in the year
1993. One year more and karvy was now dealing into mutual fund services too in the year
1994 but it didn’t stopped there, it stepped into corporate finance and investment banking in
the year 1995.
Karvy’s strategy has always been being the first entrant in the market. Karvy again hit the
limelight by becoming the first registrar in the country to be awarded ISO 9002 in the year
1997. Then it stepped into the other most Happening sector ie; IT enabled services by
establishing its own BPO units and at a gap of just 1 year it took the path of e-Business
through its website www.karvy.com . Then it entered into insurance services in the year 2001
with the launch of its retail arm “karvy- the Finapolis: your personal finance advisor”. Then
in the year 2002 it launched its PCG(Private Client Group) which looks after its High Net
11
worth Individuals .and maintain their portfolio and provides them with other financial
services. In the year 2003, it commenced secondary debt and WDM trading.
It was a decade which saw many Indian companies going global…..so why the largest
financial service provider of India should lag behind? Hence, karvy launched “karvy global
services limited” after entering into a joint venture with Computershare, Australia in the year
2004.the year 2004 also saw karvy entering into commodities marketing through karvy
comtrade.
Year 2005 saw karvy establishing a separate branch for its insurance services under the head
“ karvy insurance broking ltd” and in the same year, after being impressed with the rapid
growth of karvy stock broking limited, PCG group of Hong Kong acquired 25% stake at
KSBL. In the year 2006, karvy entered into one of the hottest sector of present time ie; real
estate Through Karvy realty& services (India) ltd. Hence, we can see now karvy being
established as the largest financial service provider of the country.
12
NOW KARVY GROUP CONSISTS OF NINE HIGHLY RENOWNED
ENTITIES WHICH ARE AS FOLLOWS:
1.
: The first securities registry to receive ISO 9002 certification in
India. Registered with SEBI as Category I Registrar, is Number 1 Registrar in the Country.
The award of being ‘Most Admired’ Registrar is one among many of the acknowledgements
we received for our customer friendly and competent services.
2.
: karvy stock broking ltd. Consists of five units namely stock
broking servics, depository participant, advisory services, distribution of financial products,
advisory services and private client goups.
3.
: it is registered with SEBI as a category 1 merchant
banker. Its clientele includesinclude leading corporate, State Governments, foreign
13
institutional investors, public and private sector companies and banks, in Indian and global
markets.
4.
: karvy insurance broking ltd is also a part of karvy stock
broking ltd. At Karvy Insurance Broking Limited both life and non-life insurance products
are provided to retail individuals, high net-worth clients and corporates.
5.
: The company provides investment, advisory and brokerage
services in Indian Commodities Markets. And most importantly, it offer a wide reach through
our branch network of over 225 branches located across 180 cities.
6.:
Karvy Global is a leading business and knowledge process
outsourcing Services Company offering creative business solutions to clients globally. It
operates in banking and financial services, inurance, healthcare and pharmaceuticals, media ,
telecom and technology. It has its sales and business development office in New York, USA
and the offshore global delivery center in Hyderabad, India
7.
: Karvy Realty (India) Limited is engaged in the business of
real estate and property services offering:
14

8.
Buying/ selling/ renting of properties

Identifying valuable investments opportunities in the real estate sector

Facilitating financial support for real estate and investments in properties

Real estate portfolio advisory services
: it is a joint venture between Computershare, Australia and
Karvy the BPO services are managed by karvy global services ltd. Summarizing it in a
diagram, it can Consultants Limited, India in the registry management services industry.
9.
Karvy Private Wealth provides you with Comprehensive
Financial Planning services that analyses your financial health thoroughly and helps you plan
your investments to meet your medium term and long-term goals. As part of this
comprehensive financial planning, we also provide recommendations on your current
portfolio, restructuring of current loans and advice on tax optimization.
15
ORGANISATION STRUCTURE OF KARVY
talking about the organization structure of karvy, we have the board of directors as the
supreme governing body , the chairman being Mr. C Parthasarthy, Mr. M. yugandhar as the
managing director, Mr. M. Ramakrishna. Prasad V. potluri as directors.
The board of diretors head the karvy group, karvy computershares limited, karvy investors
services Ltd., karvy comtrade, karvy stock broking Ltd., and karvy global services Ltd.
Karvy group being the flagship company looks after the functional departments such as
corporate affairs, group human resources, finance & accounting, training & development,
technology services and corporate quality.
Karvy computershare private limited facilitates mutual fund services, share registry and issue
registry whereas merchant banking is looked after by karvy investor services ltd. Karvy stock
broking ltd heads its another branch too ie. Karvy insurance broking ltd. The services offered
by KSBL are: stock broking, depository, research, distribution, personal client group and
institutional desk. And finally be presented as:
16
SPECTRUM OF SERVICES OFFERED BY KARVY
Karvy being the top registrar and transfer agent, functions as registrar in most of the issues in
the country. Talking about the mutual fund services offered by karvy, we can get the products
of 33 AMCs over here. it deals in both closed ended funds as well as open ended too. Now
one must be thinking why to get the mutual funds from karvy instead of getting it directly
from AMCs? we have great reasons for it: the first one being ; if we avail the services of
karvy then we can get the information about all the AMCs and their products at a single place
along with expert recommendations whereas at an AMC we can get information about the
products of that specific AMC only. And the second being wide network of
karvy….nowadays we can find karvy offices at remote areas too.
17
Along with these, karvy is very well handling the role of depository participant. Being
registered with both the depositories i.e.; NSDL (national securities depository ltd) and CDSL
(central depository services ltd), karvy can have access to both. Its wide network also
facilitates it in distribution of retail financial products.
Karvy believes in being updated always. So it is always ready to use latest technologies so
that its clients always be in touch with the latest happenings along with karvy. It offers ebusiness through internet through its website: www.karvy.com . Other than it, it also provides
its various services through SMS.
Karvy’s services are not limited to its investors only rather its offerings are for its corporate
clients and distributors too. it is very well aware of the fact that in this era of neck to neck
competition, we cant ignore any of the aspects of our business….so there’s a offering for
everybody…everyone’s welcome at karvy.
WHY SHOULD INVESTORS CHOOSE FOR KARVY?
Excellence is next to nothing….and here at karvy everybody tries their best to offer excellent
services to its clientele through its offerings maintaining the karvy culture which includes:
1. Controlled and low cost service culture: karvy is there to serve its client at the minimum
possible cost. it controls cost by its various cost- cutting techniques and minimization of
avoidable costs.
2. Large volume processing capability: being the largest financial service provider in the
country, it has the unique distinction of operating its activities on a large scale which benefits
all the parties cordially.
18
3. Adherence to strict time schedule: karvy knows that time is money and tries it best to finish
the task within the stipulated time schedule.
4. Expertise in coordinating multi-location responses: karvy has got a wide network and
hence one can find its branches at most of the places in India. Thus it enjoys its presence
everywhere and coordinates among itself in solving the queries and in responding to any
situation.
5. Expertise in managing independent entities such as banks, post-office etc.: the work
culture of karvy and the ethics followed inside karvy makes its workforce compatible with
everybody, so the karvy people establishes good coordination with independent entities too.
6. Pooling of group resources: karvy group consists of eight subsidiaries, so it can easily pool
up its resources for accomplishment of its goals, whenever needed. The groups can help each
other whenever there are peaks and lows, and even in the case when they have huge targets
just as we saw few years back, Tata group pooling its resources to acquire Corus.
HOW KARVY ACHIEVED IT?
The core competency of karvy lies in the following points due to which it enjoys a
competitive edge over its competitors. The following culture adopted by karvy makes it all
time favorite among its clientele:
1. Professionally managed by qualified and trained manpower.
2. Uniquely structured in-house software and hardware department
3. Query handling within 48 hrs.
4. Strong secretarial, accounting and audit systems.
19
5. Unique work culture of working 7 days a week in 3 shifts.
6. Unmatched network spreading all over India.
20
CHAPTER: 2
INTRODUCTION OF MUTUAL FUND
There are a lot of investment avenues available today in the financial market for an investor
with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds
where there is low risk but low return. He may invest in Stock of companies where the risk is
high and the returns are also proportionately high. The recent trends in the Stock Market have
shown that an average retail investor always lost with periodic bearish tends. People began
opting for portfolio managers with expertise in stock markets who would invest on their
behalf. Thus we had wealth management services provided by many institutions. However
they proved too costly for a small investor. These investors have found a good shelter with
the mutual funds.
CONCEPT OF MUTUAL FUND:
A mutual fund is a common pool of money into which investors place their contributions that
are to be invested in accordance with a stated objective. The ownership of the fund is thus
21
joint or “mutual”; the fund belongs to all investors. A single investor’s ownership of the fund
is in the same proportion as the amount of the contribution made by him or her bears to the
total amount of the fund Mutual Funds are trusts, which accept savings from investors and
invest the same in diversified financial instruments in terms of objectives set out in the trusts
deed with the view to reduce the risk and maximize the income and capital appreciation for
distribution for the members. A Mutual Fund is a corporation and the fund manager’s interest
is to professionally manage the funds provided by the investors and provide a return on them
after deducting reasonable management fees.
The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower
income groups to acquire without much difficulty financial assets. They cater mainly to the
needs of the individual investor whose means are small and to manage investors portfolio in a
manner that provides a regular income, growth, safety, liquidity and diversification
opportunities.
DEFINITION:
“Mutual funds are collective savings and investment vehicles where savings of small (or
sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately”.
“A mutual fund is an investment that pools your money with the money of an unlimited
number of other investors. In return, you and the other investors each own shares of the fund.
The fund's assets are invested according to an investment objective into the fund's portfolio of
22
investments. Aggressive growth funds seek long-term capital growth by investing primarily
in stocks of fast-growing smaller companies or market segments. Aggressive growth funds
are also called capital appreciation funds”.
Why Select Mutual Fund?
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest
in capital protected funds and the profit-bonds that give out more return which is slightly
higher as compared to the bank deposits but the risk involved also increases in the same
proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesn’t
mean mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which are less
riskier but are also invested in the stock markets which involves a higher risk but can expect
higher returns. Hedge fund involves a very high risk since it is mostly traded in the
derivatives market which is considered very volatile.
23
RETURN RISK MATRIX
24
HISTORY OF MUTUAL FUNDS IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank. The history of mutual funds in
India can be broadly divided into four distinctphases
FIRST PHASE – 1964-87:
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.
SECOND PHASE – 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS):
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.
25
THIRD PHASE – 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS):
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805
crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way
ahead of other mutual funds.
FOURTH PHASE – SINCE FEBRUARY 2003:
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
26
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes.
27
GROWTH IN ASSETS UNDER MANAGEMENT
The graph indicates the growth of assets under management over the years.
28
ADVANTAGES OF MUTUAL FUNDS
If mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and the avenues of investing, particularly for the
investor who has limited resources available in terms of capital and the ability to carry out
detailed research and market monitoring. The following are the major advantages offered by
mutual funds to all investors:
1. Portfolio Diversification:
Each investor in the fund is a part owner of all the fund’s assets, thus enabling him to hold a
diversified investment portfolio even with a small amount of investment that would otherwise
require big capital.
2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits from the
professional management skills brought in by the fund in the management of the investor’s
portfolio. The investment management skills, along with the needed research into available
investment options, ensure a much better return than what an investor can manage on his
own. Few investors have the skill and resources of their own to succeed in today’s fast
moving, global and sophisticated markets.
3. Reduction/Diversification Of Risk:
When an investor invests directly, all the risk of potential loss is his own, whether he places a
deposit with a company or a bank, or he buys a share or debenture on his own or in any other
from. While investing in the pool of funds with investors, the potential losses are also shared
29
with other investors. The risk reduction is one of the most important benefits of a collective
investment vehicle like the mutual fund.
4. Reduction Of Transaction Costs:
What is true of risk as also true of the transaction costs. The investor bears all the costs of
investing such as brokerage or custody of securities. When going through a fund, he has the
benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit
passed on to its investors.
5. Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When they
invest in the units of a fund, they can generally cash their investments any time, by selling
their units to the fund if open-ended, or selling them in the market if the fund is close-end.
Liquidity of investment is clearly a big benefit.
6. Convenience And Flexibility:
Mutual fund management companies offer many investor services that a direct market
investor cannot get. Investors can easily transfer their holding from one scheme to the other;
get updated market information and so on.
7. Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the assessment of all
Unit holders. However, as a measure of concession to Unit holders of open-ended equity30
oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a
concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the
Total Income will be admissible in respect of income from investments specified in Section
80L, including income from Units of the Mutual Fund. Units of the schemes are not subject
to Wealth-Tax and Gift-Tax.
8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.
10. Transparency:
You get regular information on the value of your investment in addition to disclosure on the
specific investments made by your scheme, the proportion invested in each class of assets and
the fund manager's investment strategy and outlook.
31
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:
1. No Control over Costs:
An investor in a mutual fund has no control of the overall costs of investing. The investor
pays investment management fees as long as he remains with the fund, albeit in return for the
professional management and research. Fees are payable even if the value of his investments
is declining. A mutual fund investor also pays fund distribution costs, which he would not
incur in direct investing. However, this shortcoming only means that there is a cost to obtain
the mutual fund services.
2. No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolios of shares and bonds and
other securities. Investing through fund means he delegates this decision to the fund
managers. The very-high-net-worth individuals or large corporate investors may find this to
be a constraint in achieving their objectives. However, most mutual fund managers help
investors overcome this constraint by offering families of funds- a large number of different
schemes- within their own management company. An investor can choose from different
investment plans and constructs a portfolio to his choice.
3. Managing a Portfolio Of Funds:
Availability of a large number of funds can actually mean too much choice for the investor.
He may again need advice on how to select a fund to achieve his objectives, quite similar to
the situation when he has individual shares or bonds to select.
32
4. The Wisdom of Professional Management:
That's right, this is not an advantage. The average mutual fund manager is no better at picking
stocks than the average nonprofessional, but charges fees.
5. No Control:
Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of
somebody else's car.
6. Dilution:
Mutual funds generally have such small holdings of so many different stocks that insanely
great performance by a fund's top holdings still doesn't make much of a difference in a
mutual fund's total performance.
7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen who do not make
those costs clear to their clients.
33
TYPES OF MUTUAL FUNDS SCHEMES IN INDIA
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a
collection of many stocks, an investors can go for picking a mutual fund might be easy. There
are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual
funds in categories, mentioned below:
34
A). BY STRUCTURE
1. Open - Ended Schemes:
An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of open-end schemes is liquidity.
2. Close - Ended Schemes:
Closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.
The fund is open for subscription only during a specified period. Investors can invest in the
scheme at the time of the initial public issue and thereafter they can buy or sell the units of
the scheme on the stock exchanges where they are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the units to the Mutual
Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at
least one of the two exit routes is provided to the investor.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.
B). BY NATURE
1. Equity Fund:
35
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different
stocks. The Equity Funds are sub-classified depending upon their investment objective, as
follows:
• Diversified Equity Funds
• Mid-Cap Funds
• Sector Specific Funds
• Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high on the
risk-return matrix.
2. Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions are some of the major issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:
• Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
• Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.
36
• MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks
slightly high on the risk-return matrix when compared with other debt schemes.
• Short Term Plans (STPs):
Meant for investment horizon for three to six months. These funds primarily invest in short
term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion
of the corpus is also invested in corporate debentures.
• Liquid Funds:
Also known as Money Market Schemes, These funds provides easy liquidity and
preservation of capital. These schemes invest in short-term instruments like Treasury Bills,
inter-bank call money market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon of 1day to 3
months. These schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.
3. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both
equities and fixed income securities, which are in line with pre-defined investment objective
of the scheme. These schemes aim to provide investors with the best of both the worlds.
Equity part provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment
parameter viz, Each category of funds is backed by an investment philosophy, which is pre37
defined in the objectives of the fund. The investor can align his own investment needs with
the funds objective and invest accordingly.
38
C). BY INVESTMENT OBJECTIVE:
Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes is to provide
capital appreciation over medium to long term. These schemes normally invest a major part
of their fund in equities and are willing to bear short-term decline in value for possible future
appreciation.
Income Schemes:
Income Schemes are also known as debt schemes. The aim of these schemes is to provide
regular and steady income to investors. These schemes generally invest in fixed income
securities such as bonds and corporate debentures. Capital appreciation in such schemes may
be limited.
Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically distributing a part
of the income and capital gains they earn. These schemes invest in both shares and fixed
income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes:
Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate
income. These schemes generally invest in safer, short-term instruments, such as treasury
bills, certificates of deposit, commercial paper and inter-bank call money.
39
Load Funds:
A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or
sell units in the fund, a commission will be payable. Typically entry and exit loads range
from 1% to 2%. It could be worth paying the load, if the fund has a good performance
history.
No-Load Funds:
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no load
fund is that the entire corpus is put to work.
OTHER SCHEMES:
Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to
time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings
Scheme (ELSS) are eligible for rebate.
Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that
constitute the index. The percentage of each stock to the total holding will be identical to the
stocks index weight age. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.
40
Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or industries
as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time.
41
NET ASSET VALUE (NAV)
Since each owner is a part owner of a mutual fund, it is necessary to establish the value of his
part. In other words, each share or unit that an investor holds needs to be assigned a value.
Since the units held by investor evidence the ownership of the fund’s assets, the value of the
total assets of the fund when divided by the total number of units issued by the mutual fund
gives us the value of one unit. This is generally called the Net Asset Value (NAV) of one unit
or one share. The value of an investor’s part ownership is thus determined by the NAV of the
number of units held.
Calculation of NAV:
Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10 investors
who have bought 10 units each, the total numbers of units issued are 100, and the value of
one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of his
ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the fund’s
investments will keep fluctuating with the market-price movements, causing the Net Asset
Value also to fluctuate. For example, if the value of our fund’s asset increased from Rs. 1000
to 1200, the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The
investment value can go up or down, depending on the markets value of the fund’s assets.
42
MUTUAL FUND FEES AND EXPENSES:
Mutual fund fees and expenses are charges that may be incurred by investors who hold
mutual funds. Running a mutual fund involves costs, including shareholder transaction costs,
investment advisory fees, and marketing and distribution expenses. Funds pass along these
costs to investors in a number of ways.
1. TRANSACTION FEES
I) Purchase Fee:
It is a type of fee that some funds charge their shareholders when they buy shares. Unlike a
front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically
imposed to defray some of the fund's costs associated with the purchase.
ii) Redemption Fee:
It is another type of fee that some funds charge their shareholders when they sell or redeem
shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and
is typically used to defray fund costs associated with a shareholder's redemption.
iii) Exchange Fee:
Exchange fee that some funds impose on shareholders if they exchange (transfer) to another
fund within the same fund group or "family of funds."
2. PERIODIC FEES:
I) Management Fee:
Management fees are fees that are paid out of fund assets to the fund's investment adviser for
investment portfolio management, any other management fees payable to the fund's
43
investment adviser or its affiliates, and administrative fees payable to the investment adviser
that are not included in the "Other Expenses" category. They are also called maintenance
fees.
ii) Account Fee:
Account fees are fees that some funds separately impose on investors in connection with the
maintenance of their accounts. For example, some funds impose an account maintenance fee
on accounts whose value is less than a certain dollar amount.
3. OTHER OPERATING EXPENSES:
Transaction Costs:
These costs are incurred in the trading of the fund's assets. Funds with a high turnover ratio,
or investing in illiquid or exotic markets usually face higher transaction costs. Unlike the
Total Expense Ratio these costs are usually not reported.
LOADS:
Definition of a load:
Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale of
shares. A load is a type of Commission (remuneration). Depending on the type of load a
mutual fund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of
both. The different types of loads are outlined below.
Front-end load:
Also known as Sales Charge, this is a fee paid when shares are purchased. Also known as a
"front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end
44
loads reduce the amount of your investment. For example, let's say you have Rs.10, 000 and
want to invest it in a mutual fund with a 5% front-end load. The Rs.500 sales load you must
pay comes off the top, and the remaining Rs.9500 will be invested in the fund. According to
NASD rules, a front-end load cannot be higher than 8.5% of your invest.
Back-end load:
Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Also known as
a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The
amount of this type of load will depend on how long the investor holds his or her shares and
typically decreases to zero if the investor holds his or her shares long enough.
Level load / Low load:
It's similar to a back-end load in that no sales charges are paid when buying the fund. Instead
a back-end load may be charged if the shares purchased are sold within a given time frame.
The distinction between level loads and low loads as opposed to back-end loads, is that this
time frame where charges are levied is shorter.
No-load Fund:
As the name implies, this means that the fund does not charge any type of sales load. But, as
outlined above, not every type of shareholder fee is a "sales load." A no-load fund may
charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees,
and account fees.
45
SELECTION PARAMETERS FOR MUTUAL FUND
Your objective:
The first point to note before investing in a fund is to find out whether your objective matches
with the scheme. It is necessary, as any conflict would directly affect your prospective
returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension
plans, children’s plans, sector-specific schemes, etc.
Your risk capacity and capability:
This dictates the choice of schemes. Those with no risk tolerance should go for debt schemes,
as they are relatively safer. Aggressive investors can go for equity investments. Investors that
are even more aggressive can try schemes that invest in specific industry or sectors.
Fund Manager’s and scheme track record:
Since you are giving your hard earned money to someone to manage it, it is imperative that
he manages it well. It is also essential that the fund house you choose has excellent track
record. It also should be professional and maintain high transparency in operations. Look at
the performance of the scheme against relevant market benchmarks and its competitors. Look
at the performance of a longer period, as it will give you how the scheme fared in different
market conditions.
46
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund before
investing. This is because the money is deducted from your investments. A higher entry load
or exit load also will eat into your returns. A higher expense ratio can be justified only by
superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from
your modest returns.
Also, Morningstar rates mutual funds. Each year end, many financial publications list the
year’s best performing mutual funds. Naturally, very eager investors will rush out to purchase
shares of last year's top performers. That's a big mistake. Remember, changing market
conditions make it rare that last year's top performer repeats that ranking for the current year.
Mutual fund investors would be well advised to consider the fund prospectus, the fund
manager, and the current market conditions. Never rely on last year's top performers.
Types of Returns on Mutual Fund:
There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution. If fund holdings increase in price
but are not sold by the fund manager, the fund's shares increase in price. You can then sell
your mutual fund shares for a profit.
47
Funds will also usually give you a choice either to receive a check for distributions or to
reinvest the earnings and get more shares.
RISK FACTORS OF MUTUAL FUNDS:
1. The Risk-Return Trade-Off:
The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns / loss and lower the risk lesser the returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing to take. In order to
do this you must first be aware of the different types of risks involved with your investment
decision.
2. Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting
the market in general lead to this. This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works
on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.
3. Credit Risk:
The debt servicing ability (may it be interest payments or repayment of principal) of a
company through its cash flows determines the Credit Risk faced by you. This credit risk is
measured by independent rating agencies like CRISIL who rate companies and their paper. A
‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality.
A well-diversified portfolio might help mitigate this risk.
48
4. Inflation Risk:
Things you hear people talk about:
"Rs. 100 today is worth more than Rs. 100 tomorrow."
"Remember the time when a bus ride coasted 50 paisa?"
"Mehangai Ka Jamana Hai."
The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times
people make conservative investment decisions to protect their capital but end up with a sum
of money that can buy less than what the principal could at the time of the investment. This
happen when inflation grows faster than the return on your investment. A well-diversified
portfolio with some investment in equities might help mitigate this risk.
5. Interest Rate Risk:
In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of
bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate
environment. A well-diversified portfolio might help mitigate this risk.
6.Political / Government Policy Risk:
Changes in government policy and political decision can change the investment Environment.
They can create a favourable environment for investment or vice versa.
49
6. Liquidity Risk:
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities.
50
CHAPTER: 3
WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The money is
invested in various instruments depending on the objective of the scheme. The income
generated by selling securities or capital appreciation of these securities is passed on to the
investors in proportion to their investment in the scheme. The investments are divided into
units and the value of the units will be reflected in Net Asset Value or NAV of the unit. NAV
is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the
net asset value of the scheme divided by the number of units outstanding on the valuation
date. Mutual fund companies provide daily net asset value of their schemes to their investors.
51
NAV is important, as it will determine the price at which you buy or redeem the units of a
scheme. Depending on the load structure of the scheme, you have to pay entry or exit load.
STRUCTURE OF A MUTUAL FUND:
India has a legal framework within which Mutual Fund have to be constituted. In India open
and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual
Fund in India is allowed to issue open-end and close-end schemes under a common legal
structure. The structure that is required to be followed by any Mutual Fund in India is laid
down under SEBI (Mutual Fund) Regulations, 1996.
The Fund Sponsor:
Sponsor is defined under SEBI regulations as any person who, acting alone or in combination
of another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the
52
promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust
and appoints a Board of Trustees. The sponsor also appoints the Asset Management
Company as fund managers. The sponsor either directly or acting through the trustees will
also appoint a custodian to hold funds assets. All these are made in accordance with the
regulation and guidelines of SEBI.
As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least
40% of the net worth of the Asset Management Company and possesses a sound financial
track record over 5 years prior to registration.
Mutual Funds as Trusts:
A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor
acts as a settler of the Trust, contributing to its initial capital and appoints a trustee to hold the
assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust.
The fund then invites investors to contribute their money in common pool, by scribing to
“units” issued by various schemes established by the Trusts as evidence of their beneficial
interest in the fund.
It should be understood that the fund should be just a “pass through” vehicle. Under the
Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the
Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the
trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unitholders are the beneficial owners of the investment held by the Trusts, even as these
investments are held in the name of the Trustees on a day-to-day basis. Being public trusts,
53
Mutual Fund can invite any number of investors as beneficial owners in their investment
schemes.
54
Trustees:
A Trust is created through a document called the Trust Deed that is executed by the fund
sponsor in favour of the trustees. The Trust- the Mutual Fund – may be managed by a board
of trustees- a body of individuals, or a trust company- a corporate body. Most of the funds in
India are managed by Boards of Trustees. While the boards of trustees are governed by the
Indian Trusts Act, where the trusts are a corporate body, it would also require to comply with
the Companies Act, 1956. The Board or the Trust company as an independent body, acts as a
protector of the of the unit-holders interests. The Trustees do not directly manage the
portfolio of securities. For this specialist function, the appoint an Asset Management
Company. They ensure that the Fund is managed by ht AMC as per the defined objectives
and in accordance with the trusts deeds and SEBI regulations.
The Asset Management Companies:
The role of an Asset Management Company (AMC) is to act as the investment manager of
the Trust under the board supervision and the guidance of the Trustees. The AMC is required
to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have
a net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and
non- independent, should have adequate professional expertise in financial services and
should be individuals of high morale standing, a condition also applicable to other key
personnel of the AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides
its role as a fund manager, it may undertake specified activities such as advisory services and
financial consulting, provided these activities are run independent of one another and the
AMC’s resources (such as personnel, systems etc.) are properly segregated by the activity.
55
The AMC must always act in the interest of the unit-holders and reports to the trustees with
respect to its activities.
Custodian and Depositories:
Mutual Fund is in the business of buying and selling of securities in large volumes. Handling
these securities in terms of physical delivery and eventual safekeeping is a specialized
activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or
participating in any clearance system through approved depository companies on behalf of
the Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with
the Mutual Fund. The custodian should be an entity independent of the sponsors and is
required to be registered with SEBI. With the introduction of the concept of dematerialization
of shares the dematerialized shares are kept with the Depository participant while the
custodian holds the physical securities. Thus, deliveries of a fund’s securities are given or
received by a custodian or a depository participant, at the instructions of the AMC, although
under the overall direction and responsibilities of the Trustees.
Bankers:
A Fund’s activities involve dealing in money on a continuous basis primarily with respect to
buying and selling units, paying for investment made, receiving the proceeds from sale of the
investments and discharging its obligations towards operating expenses. Thus the Fund’s
banker plays an important role to determine quality of service that the fund gives in timely
delivery of remittances etc.
56
Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and
provide other related services such as preparation of transfer documents and updating
investor records. A fund may choose to carry out its activity in-house and charge the scheme
for the service at a competitive market rate. Where an outside Transfer agent is used, the fund
investor will find the agent to be an important interface to deal with, since all of the investor
services that a fund provides are going to be dependent on the transfer agent.
REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:
The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These
regulations make it mandatory for mutual fund to have three structures of sponsor trustee and
asset Management Company. The sponsor of the mutual fund and appoints the trustees. The
trustees are responsible to the investors in mutual fund and appoint the AMC for managing
the investment portfolio. The AMC is the business face of the mutual fund, as it manages all
the affairs of the mutual fund. The AMC and the mutual fund have to be registered with
SEBI.
57
SEBI REGULATIONS:
• As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual
funds to protect the interest of the investors.
• SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored
by private sector entities were allowed to enter the capital market.
• The regulations were fully revised in 1996 and have been amended thereafter from time to
time.
• SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.
• All mutual funds whether promoted by public sector or private sector entities including
those promoted by foreign entities are governed by the same set of Regulations. The risks
associated with the schemes launched by the mutual funds sponsored by these entities are of
similar type. There is no distinction in regulatory requirements for these mutual funds and all
are subject to monitoring and inspections by SEBI.
• SEBI Regulations require that at least two thirds of the directors of trustee company or
board of trustees must be independent i.e. they should not be associated with the sponsors.
• Also, 50% of the directors of AMC must be independent. All mutual funds are required to
be registered with SEBI before they launch any scheme.
• Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in any
scheme and that each scheme is subject to 20 : 25 condition [I.e. minimum 20 investors per
scheme and one investor can hold more than 25% stake in the corpus in that one scheme].
58
• Also SEBI has permitted MFs to launch schemes overseas subject various restrictions and
also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.
59
ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organisation. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been
registered with
Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional
SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It
functions under the supervision and guidelines of its Board of Directors.
Association of and healthy market with ethical lines enhancing and maintaining standards. It
follows the principle of both protecting and promoting the interests of mutual funds as well as
their unit holders.
60
The Objectives of Association of Mutual Funds in India:
The Association of Mutual Funds of India works with 30 registered AMCs of the country. It
has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The
objectives are as follows:
•This mutual fund association of India maintains high professional and ethical standards in all
areas of operation of the industry.
• It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual fund
and asset management. The agencies who are by any means connected or involved in the
field of capital markets and financial services also involved in this code of conduct of the
association.
• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
• Association of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It implements a
programme of training and certification for all intermediaries and other engaged in the mutual
fund industry.
• AMFI undertakes all India awareness programme for investors in order to promote proper
understanding of the concept and working of mutual funds.
61
• At last but not the least association of mutual fund of India also disseminate informations
on Mutual Fund Industry and undertakes studies and research either directly or in association
with other bodies.
AMFI Publications:
AMFI publish mainly two types of bulletin. One is on the monthly basis and the other is
quarterly. These publications are of great support for the investors to get intimation of the
knowhow of their parked money.
62
CHAPTER: 4
MUTUAL FUNDS IN INDIA
In 1963, the day the concept of Mutual Fund took birth in India. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988 year saw some new
mutual fund companies, but UTI remained in a monopoly position.
The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of question. But
yes, some 24 million shareholders were accustomed with guaranteed high returns by the
beginning of liberalization of the industry in 1992. This good record of UTI became
marketing tool for new entrants. The expectations of investors touched the sky in profitability
factor. However, people were miles away from the preparedness of risks factor after the
liberalization.
The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There was rather no choice apart from holding the cash or to further
continue investing in shares. One more thing to be noted, since only closed-end funds were
floated in the market, the investors disinvested by selling at a loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course the lack of transparent rules in the
63
whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock
market performance, mutual funds have not yet recovered, with funds trading at an average
discount of 1020 percent of their net asset value.
The securities and Exchange Board of India (SEBI) came out with comprehensive regulation
in 1993 which defined the structure of Mutual Fund and Asset Management Companies for
the first time.
The supervisory authority adopted a set of measures to create a transparent and competitive
environment in mutual funds. Some of them were like relaxing investment.
Restrictions into the market, introduction of open-ended funds, and paving the gateway for
mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for long-term saving. The
more the variety offered, the quantitative will be investors.
Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the
private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations
in India managing 1, 02,000 crores.
At last to mention, as long as mutual fund companies are performing with lower risks and
higher profitability within a short span of time, more and more people will be inclined to
invest until and unless they are fully educated with the dos and don’ts of mutual funds.
Mutual fund industry has seen a lot of changes in past few years with multinational
companies coming into the country, bringing in their professional expertise in managing
funds worldwide. In the past few months there has been a consolidation phase going on in the
64
mutual fund industry in India. Now investors have a wide range of Schemes to choose from
depending on their individual profiles.
MUTUAL FUND COMPANIES IN INDIA
The concept of mutual funds in India dates back to the year 1963. The era between 1963 and
1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets
under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By
the end of the 80s decade, few other mutual fund companies in India took their position in
mutual fund market.
The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual
Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual
Fund.
The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of
1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started
penetrating the fund families. In the same year the first Mutual Fund Regulations came into
existence with re-registering all mutual funds except UTI. The regulations were further given
a revised shape in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which has now
merged with Franklin Templeton. Just after ten years with private sector players penetration,
the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
65
Major Mutual Fund Companies in India:
• ABN AMRO Mutual Fund,
• Birla Sun Life Mutual Fund,
• Bank of Baroda Mutual Fund,
• HDFC Mutual Fund,
•HSBC Mutual Fund,
• ING Vysya Mutual Fund,
• Prudential ICICI Mutual Fund,
• St ate Bank of India Mutual Fund,
• Tata Mutual Fund,
• Unit Trust of India Mutual Fund,
• Reliance Mutual Fund,
• Standard Chartered Mutual Fund,
• Franklin Templeton India Mutual Fund,
• Morgan Stanley Mutual Fund India,
• Escorts Mutual Fund,
• Alliance Capital Mutual Fund,
• Benchmark Mutual Fund,
66
• Can bank Mutual Fund,
• Chola Mutual Fund,
• LIC Mutual Fund,
• GIC Mutual Fund.
For the first time in the history of Indian mutual fund industry, Unit Trust of India Mutual
Fund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund
was ranked at the number one slot in terms of total assets.
In the very next month, the UTIMF had regained its top position as the largest fund house in
India.
Now, according to the current pegging order and the data released by Association of Mutual
Funds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs 39,020
crore has become the largest mutual fund in India On the other hand, UTIMF, with an AUM
of Rs 37,535 crore, has gone to second position. The Prudential ICICI MF has slipped to the
third position with an AUM of Rs 34,746 crore.
It happened for the first time in last one year that a private sector mutual fund house has
reached to the top slot in terms of asset under management (AUM). In the last one year to
January, AUM of the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.
According to the data released by Association of Mutual Funds in India (AMFI), the
combined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billion
in April compared to Rs 4,932.86 billion in March.
67
Reliance MF maintained its top position as the largest fund house in the country with Rs
74.25 billion jump in AUM to Rs 883.87 billion at April-end.
The second-largest fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs 638.80
billion.
ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion re
respectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at
the end of April, while UTI MF had assets worth Rs 544.89 billion.
The other fund houses which saw an increase in their average AUM in April include -Canara
Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LIC MF.
68
CHAPTER: 5
RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND
RELIANCE MUTUAL FUND
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The
sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the
Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was
changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various
schemes under which units are issued to the Public with a view to contribute to the capital
market and to provide investors the opportunities to make investments in diversified
securities.
RMF is one of India’s leading Mutual Funds, with Average Assets Under Management
(AAUM) of Rs. 88,388 crs (AAUM for 30th Apr 09) and an investor base of over 71.53
Lacs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of
the fastest growing mutual funds in the country. RMF offers investors a well-rounded
69
portfolio of products to meet varying investor requirements and has presence in 118 cities
across the country.
Reliance Mutual Fund constantly endeavours to launch innovative products and customer
service initiatives to increase value to investors. "Reliance Mutual Fund schemes are
managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital
Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital
being held by minority shareholders."
Sponsor: Reliance Capital Limited.
Trustee: Reliance Capital Trustee Co. Limited.
Investment Manager:
Reliance Capital Asset Management Limited. The Sponsor, the Trustee and the Investment
Manager are incorporated under the Companies Act 1956.
Vision Statement:
“To be a globally respected wealth creator with an emphasis on customer care and a culture
of good corporate governance.”
Mission Statement:
To create and nurture a world-class, high performance environment aimed at delighting our
customers.
70
The Main Objectives of the Trust:
• To carry on the activity of a Mutual Fund as may be permitted at law and formulate and
devise various collective Schemes of savings and investments for people in India and abroad
and also ensure liquidity of investments for the Unit holders;
•To deploy Funds thus rose so as to help the Unit holders earn reasonable returns on their
savings.
•To take such steps as may be necessary from time to time to realise the effects without any
limitation.
71
SCHEMES:
A). EQUITY/GROWTH SCHEMES:
The aim of growth funds is to provide capital appreciation over the medium to long- term.
Such schemes normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.
1. Reliance Infrastructure Fund (Open-Ended Equity):
The primary investment objective of the scheme is to generate long term capital appreciation
by investing predominantly in equity and equity related instruments of companies engaged in
infrastructure (Airports, Construction, Telecommunication, Transportation) and infrastructure
related sectors and which are incorporated or have their area of primary activity, in India and
the secondary objective is to generate consistent returns by investing in debt and money
market securities.
Investment Strategy:
The investment focus would be guided by the growth potential and other economic factors of
the country. The Fund aims to maximize long-term total return by investing in equity and
equity-related securities which have their area of primary activity in India.
2. Reliance Quant plus Fund/Reliance Index Fund (Open-Ended Equity):
The investment objective of the Scheme is to generate capital appreciation through
investment in equity and equity related instruments. The Scheme will seek to generate capital
appreciation by investing in an active portfolio of stocks selected from S & P CNX Nifty on
72
the basis of a mathematical model. An investment fund that approach stock selection process
based on quantitative analysis.
3. Reliance Natural Resources Fund (Open-Ended Equity):
The primary investment objective of the scheme is to seek to generate capital appreciation &
provide long-term growth opportunities by investing in companies principally engaged in the
discovery, development, production, or distribution of natural resourhe secondary objective is
to generate consistent returns by investing in debt and money market securities.
Natural resources may include, for example, energy sources, precious and other metals, forest
products, food and agriculture, and other basic commodities.
4. Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity ):
The primary objective of the scheme is to generate long-term capital appreciation from a
portfolio that is invested predominantly in equities along with income tax benefit.
The scheme may invest in equity shares in foreign companies and instruments convertible
into equity shares of domestic or foreign companies and in derivatives as may be permissible
under the guidelines issued by SEBI and RBI.
5. Reliance Equity Advantage Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate capital appreciation &
provide long-term growth opportunities by investing in a portfolio predominantly of equity &
equity related instruments with investments generally in S & P CNX Nifty stocks and the
secondary objective is to generate consistent returns by investing in debt and money market
securities.
73
6. Reliance Equity Fund (Open-Ended Diversified Equity) :
The primary investment objective of the scheme is to seek to generate capital appreciation &
provide long-term growth opportunities by investing in a portfolio constituted of equity &
equity related securities of top 100 companies by market capitalization & of companies
which are available in the derivatives segment from time to time and the secondary objective
is to generate consistent returns by investing in debt and money market securities.
Reliance Tax Saver (ELSS) Fund (Open-Ended Equity):
The primary objective of the scheme is to generate long-term capital appreciation from a
portfolio that is invested predominantly in equity and equity related instruments.
Tax Benefits:
•Investment upto Rs 1 lakh by the eligible investor in this fund would enable you to avail the
benefits under Section 80C (2) of the Income-tax Act, 1961.
•Dividends received will be absolutely TAX FREE.
•The dividend distribution tax (payable by the AMC) for equity schemes is also NIL
8. Reliance Growth Fund (Open-Ended Equity):
The primary investment objective of the Scheme is to achieve long term growth of capital by
investment in equity and equity related securities through a research based investment
approach.
74
9. Reliance Vision Fund (Open-Ended Equity) :
The primary investment objective of the Scheme is to achieve long term growth of capital by
investment in equity and equity related securities through a research based investment
approach.
10. Reliance Equity Opportunities Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate capital appreciation &
provide long-term growth opportunities by investing in a portfolio constituted of equity
securities & equity related securities and the secondary objective is to generate consistent
returns by investing in debt and money market securities.
11. Reliance NRI Equity Fund (Open-Ended Diversified Equity):
The Primary investment objective of the scheme is to generate optimal returns by investing in
equity or equity related instruments primarily drawn from the Companies in the BSE 200
Index.
12. Reliance Long Term Equity Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate long term capital
appreciation & provide long-term growth opportunities by investing in a portfolio constituted
of equity & equity related securities and Derivatives and the secondary objective is to
generate consistent returns by investing in debt and money market securities.
It is a 36-month close ended diversified equity fund with an automatic conversion into an
open ended scheme on expiry of 36-months from the date of allotment. It aims to maximize
returns by investing 70-100% in Equities focusing in small and mid cap companies.
75
13. Reliance Regular Savings Fund (Open-Ended Equity):
Reliance Regular Savings Fund provides you the choice of investing in Debt, Equity or
Hybrid options with a pertinent investment objective and pattern for each option. Invest as
little as Rs.100/-every month in the Reliance Regular Savings Fund.
For the first time in India, your mutual fund offers instant cash withdrawal facility on your
investment at any VISA-enabled ATM near you. With a choice of three investment options,
the fund is truly, the smart new way to invest.
B). DEBT/INCOME SCHEMES:
The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity markets. However,
opportunities of capital appreciation are also limited in such funds. The NAVs of such funds
are affected because of change in interest rates in the country. If the interest rates fall, NAVs
of such funds are likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.
1. Reliance Monthly Income Plan:
(An Open Ended Fund, Monthly Income is not assured & is subject to the availability of
distributable surplus) The Primary investment objective of the Scheme is to generate regular
76
income in order to make regular dividend payments to unit holders and the secondary
objective is growth of capital.
2. Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan:
(Open-ended Government Securities Scheme) The primary objective of the Scheme is to
generate optimal credit risk-free returns by investing in a portfolio of securities issued and
guaranteed by the central Government and State Government.
3. Reliance Income Fund:
(An Open-ended Income Scheme) The primary objective of the scheme is to generate optimal
returns consistent with moderate levels of risk. This income may be complemented by capital
appreciation of the portfolio. Accordingly, investments shall predominantly be made in Debt
& Money market Instruments.
4. Reliance Medium Term Fund:
(An Open End Income Scheme with no assured returns) The primary investment objective of
the Scheme is to generate regular income in order to make regular dividend payments to unit
holders and the secondary objective is growth of capital
5. Reliance Short Term Fund:
(An Open End Income Scheme) The primary investment objective of the scheme is to
generate stable returns for investors with a short investment horizon by investing in Fixed
Income Securities of short term maturity.
77
6. Reliance Liquid Fund:
(Open-ended Liquid Scheme) The primary investment objective of the Scheme is to generate
optimal returns consistent with moderate levels of risk and high liquidity Accordingly,
investments shall predominantly be made in Debt and Money Market Instruments.
7. Reliance Floating Rate Fund:
(An Open End Liquid Scheme) The primary objective of the scheme is to generate regular
income through investment in a portfolio comprising substantially of Floating Rate Debt
Securities (including floating rate securitised debt and Money Market Instruments and Fixed
Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in
fixed rate debt Securities (including fixed rate securitised debt, Money Market Instruments
and Floating Rate Debt Instruments swapped for fixed returns.
8. Reliance NRI Income Fund:
(An Open-ended Income scheme) The primary investment objective of the Scheme is to
generate optimal returns consistent with moderate levels of risks. This income may be
complimented by capital appreciation of the portfolio. Accordingly, investments shall
predominantly be made in debt Instruments.
9. Reliance Liquidity Fund:
(An Open - ended Liquid Scheme) The investment objective of the Scheme is to generate
optimal returns consistent with moderate levels of risk and high liquidity. Accordingly,
investments shall predominantly be made in Debt and Money Market Instruments.
78
10. Reliance Interval Fund :
(A Debt Oriented Interval Scheme) The primary investment objective of the scheme is to
seek to generate regular returns and growth of capital by investing in a diversified portfolio
11. Reliance Liquid Plus Fund:
(An Open-ended Income Scheme) The investment objective of the Scheme is to generate
optimal returns consistent with moderate levels of risk and liquidity by investing in debt
securities and money market securities.
12. Reliance Fixed Horizon Fund–I:
(A closed ended Scheme) The primary investment objective of the scheme is to seek to
generate regular returns and growth of capital by investing in a diversified portfolio.
13. Reliance Fixed Horizon Fund –II:
(A closed ended Scheme.) The primary investment objective of the scheme is to seek to
generate regular returns and growth of capital by investing in a diversified portfolio.
14. Reliance Fixed Horizon Fund –III:
(A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio.
15. Reliance Fixed Tenor Fund:
(A Close-ended Scheme) The primary investment objective of the Plan is to seek to generate
regular returns and growth of capital by investing in a diversified portfolio.
79
16. Reliance Fixed Horizon Fund -Plan C:
(A closed ended Scheme.) The primary investment objective of the scheme is to seek to
generate regular returns and growth of capital by investing in a diversified portfolio.
17. Reliance Fixed Horizon Fund - IV:
(A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio.
18. Reliance Fixed Horizon Fund - V:
(A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio of
Central and State Government securities and Other fixed income/ debt securities normally
maturing in line with the time profile of the scheme with the objective of limiting interest rate
volatility.
19. Reliance Fixed Horizon Fund – VI :
(A Close-ended Income Scheme) The primary investment objective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio of: Central and State Government securities and Other fixed income/ debt securities normally
maturing in line with the time profile of the series with the objective of limiting interest rate
volatility.
20. Reliance Fixed Horizon Fund – VII :
80
(A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio of: Central and State Government securities and Other fixed income/ debt securities normally
maturing in line with the time profile of the series with the objective of limiting interest rate
volatility.
C). SECTOR SPECIFIC SCHEMES:
These are the funds/schemes which invest in the securities of specified sectors or industries
e.g. Pharmaceuticals, Software, FMCG, Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may
give higher returns, they are more risky compared to diversified funds.
1. Reliance Banking Fund:
Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary
investment objective to generate continuous returns by actively investing in equity / equity
related or fixed income securities of banks.
2. Reliance Diversified Power Sector Fund:
Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme. The
primary investment objective of the Scheme is to seek to generate consistent returns by
81
actively investing in equity / equity related or fixed income securities of Power and other
associated companies.
3. Reliance Pharma Fund:
Reliance Pharma Fund is an Open-ended Pharma Sector Scheme. The primary investment
objective of the Scheme is to generate consistent returns by investing in equity / equity
related or fixed income securities of Pharma and other associated companies.
4. Reliance Media & Entertainment Fund:
Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment sector
scheme. The the primary investment objective of the Scheme is to generate consistent returns
by investing in equity / equity related or fixed income securities of media & entertainment
and other associated companies.
D). RELIANCE GOLD EXCHANGE TRADED FUND:
(An open-ended Gold Exchange Traded Fund) The investment objective is to seek to provide
returns that closely correspond to returns provided by price of gold through investment in
physical Gold (and Gold related securities as permitted by Regulators from time to time).
However, the performance of the scheme may differ from that of the domestic prices of Gold
due to expenses and or other related factors.
82
UNIT TRUST OF INDIA MUTUAL FUND
'Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. For more
than two decades it remained the sole vehicle for investment in the capital market by the
Indian citizens. In mid- 1980s public sector banks were allowed to open mutual funds. The
real vibrancy and competition in the MF industry came with the setting up of the Regulator
SEBI and its laying down the MF Regulations in 1993.UTI maintained its pre-eminent place
till 2001, when a massive decline in the market indices and negative investor sentiments after
Ketan Parekh scam created doubts about the capacity of UTI to meet its obligations to the
investors. This was further compounded by two factors; namely, its flagship and largest
scheme US 64 was sold and re-purchased not at intrinsic NAV but at artificial price and its
Assured Return Schemes had promised returns as high as 18% over a period going up to two
decades.
In order to distance Government from running a mutual fund the ownership was transferred
to four institutions; namely SBI, LIC, BOB and PNB, each owning 25%. UTI lost its market
dominance rapidly and by end of 2005,when the new share-holders actually paid the
consideration money to Government its market share had come down to close to 10%.
A new board was constituted and a new management inducted. Systematic study of its
problems role and functions was carried out with the help of a reputed international
consultant. Once again UTI has emerged as a serious player in the industry. Some of the
funds have won famous awards, including the Best Infra Fund globally from Lipper. UTI has
been able to benchmark its employee compensation to the best in the market.
83
Besides running domestic MF Schemes UTI AMC is also a registered portfolio manager
under the SEBI (Portfolio Managers) Regulations.
This company runs two successful funds with large international investors being active
participants. UTI has also launched a Private Equity Infrastructure Fund along with HSH
Nord Bank of Germany and Shinsei Bank of Japan.
Vision:
To be the most Preferred Mutual Fund.
Mission:
• The most trusted brand, admired by all stakeholders.
• The largest and most efficient money manager with global presence
• The best in class customer service provider
• The most preferred employer
• The most innovative and best wealth creator
• A socially responsible organisation known for best corporate governance.
Assets Under Management: UTI Asset Management Co. Ltd
Sponsor:
•State Bank of India
•Bank of Baroda
84
•Punjab National Bank
•Life Insurance Corporation of India
Trustee: UTI Trustee Co. Limited.
Reliability:
UTIMF has consistently reset and upgraded transparency standards. All the branches, UFCs
and registrar offices are connected on a robust IT network to ensure cost-effective quick and
efficient service. All these have evolved UTIMF to position as a dynamic, responsive,
restructured, efficient and transparent entity, fully compliant with SEBI regulations.
SCHEMES:
A). EQUITY FUND:
1. UTI Energy Fund (Open Ended Fund):
Investment will be made in stocks of those companies engaged in the following are:
a) Petro sector - oil and gas products & processing.
b) All types of Power generation companies.
c) Companies related to storage of energy.
D) Companies manufacturing energy development equipment related ( like petro and power).
e) Consultancy & Finance Companies.
85
2. UTI Transportation And Logistics Fund (Auto Sector Fund) (Open Ended Fund):
Investment Objective is “capital appreciation” through investments in stocks of the
companies engaged in the transportation and logistics sector. At least 90% of the funds will
be invested in equity and equity related instruments. At least 80% of the funds will be
invested in equity and equity related instruments of the companies principally engaged in
providing transportation services, companies principally engaged in the design, manufacture,
distribution, or sale of transportation equipment and companies in the logistics sector. Up to
10% of the funds will be invested in cash/money market instruments.
3. UTI Banking Sector Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide capital appreciation through
investments in the stocks of the companies/institutions engaged in the banking and financial
services activities.
4. UTI Infrastructure Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide Capital appreciation through
investing in the stocks of the companies engaged in the sectors like Metals, Building.
materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of
the companies which form part of Infrastructure Industries
5. UTI Equity Tax Savings Plan (Open Ended Fund):
An open-ended equity fund investing a minimum of 80% in equity and equity related
instruments. It aims at enabling members to avail tax rebate under Section 80C of the IT Act
and provide them with the benefits of growth.
86
6. UTI Growth Sector Fund – Pharma (Open Ended Fund):
An open-ended fund which exclusively invests in the equities of the Pharma & Healthcare
sector companies. This fund is one of the growth sector funds aiming to invest in companies
engaged in business of manufacturing and marketing of bulk drug, formulations and
healthcare products and services.
7. UTI Growth Sector Fund – Services (Open Ended Fund):
An open-ended fund which invests in the equities of the Services Sector companies of the
country. One of the growth sector funds aiming to provide growth of capital over a period of
time as well as to make income distribution by investing the funds in stocks of companies
engaged in service sector such as banking, finance, insurance, education, training, telecom,
travel, entertainment, hotels, etc.
8. UTI Growth Sector Fund – Software (Open Ended Fund):
An open-ended fund which invests exclusively in the equities of the Software Sector
companies. One of the growth sectors funds aiming to invest in equity shares of companies
belonging to information technology sector to provide returns to investors through capital
growth as well as through regular income distribution.
9. UTI Master Equity Plan Unit Scheme (Close Ended Fund):
The scheme primarily aims at securing for the investors capital appreciation by
investing the funds of the scheme in equity shares of companies with good growth prospects.
87
10. UTI Master Plus Unit Scheme (Open Ended Fund):
An open-ended equity fund with an objective of long-term capital appreciation through
investments in equities and equity related instruments, convertible debentures, derivatives in
India and also in overseas markets.
11. UTI Master Value Fund (Open Ended Fund):
An open-ended equity fund investing in stocks which are currently undervalued to their
future earning potential and carry medium risk profile to provide 'Capital Appreciation'.
12. UTI Equity Fund (Open Ended Fund):
UTI Equity Fund is open-ended equity scheme with an objective of investing at least 80% of
its funds in equity and equity related instrument with medium to high risk profile and up to
20% in debt and money market instruments with low to medium risk profile.
13. UTI Top 100 Fund (Open Ended Fund):
An open-ended equity fund for investment in equity shares, convertible & non- convertible
debentures and other capital and money market instruments with a provision to invest upto
50% of its corpus in PSU's equities and equity related products. The fund aims to provide unit
holders capital appreciation & income distribution.
14. UTI Master share Unit Scheme (Open Ended Fund):
An Open-end equity fund aiming to provide benefit of capital appreciation and income
distribution through investment in equity.
88
15. UTI mid Cap Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide 'Capital appreciation' by investing
primarily in mid cap stocks.
16. UTI MNC Fund (Open Ended Fund):
An open-ended equity fund with the objective to invest predominantly in the equity shares of
multinational companies in diverse sectors such as FMCG, Pharmaceutical, Engineering etc.
17.UTI Dividend Yield Fund (Open Ended Fund):
It aims to provide medium to long term capital gains and/or dividend distribution by investing
predominantly in equity and equity related instruments which offer high dividend yield.
18. UTI Opportunities Fund (Open Ended Fund):
This scheme seeks to generate capital appreciation and/or income distribution by investing
the funds of the scheme in equity shares and equity-related instruments. The focus of the
scheme is to capitalise on opportunities arising in the market by responding to the
dynamically changing Indian economy by moving its investments amongst different sectors
as prevailing trends change.
19. UTI Leadership Equity Fund (Open Ended Fund):
This scheme seeks to generate capital appreciation and / or income distribution by investing
the funds in stocks that are "Leaders" in their respective industries / sectors / sub- sector.
20. UTI Contra Fund (Open Ended Fund):
An open ended equity scheme with the objective to provide long term capital
appreciation/dividend distribution through investments in listed equities & equity related
89
instruments. The fund offers an opportunity to benefit from the impact of non- rational
investors' behaviour by focussing on stocks that are currently undervalued because of
emotional & behavioural patterns present in the stock market.
21. UTI SPREAD Fund (Open Ended Fund):
The investment objective of the scheme is to provide capital appreciation and dividend
distribution through arbitrage opportunities arising out of price differences between the cash
and derivative market by investing predominantly in equity & equity related securities,
derivatives and the balance portion in debt securities. However, there can be no assurance
that the investment objective of the scheme will be realised.
22. UTI Wealth Builder Fund (Close Ended Fund):
The objective of the scheme is to achieve long term capital appreciation by investing
predominantly in a diversified portfolio of equity and equity related instruments.
23. UTI Long Term Advantage Fund - Series I (Close Ended Fund):
The investment objective of the scheme is to provide medium to long term capital
appreciation along with income tax benefit.
24. UTI India Lifestyle Fund (Close Ended Fund):
The investment objective of the scheme is to provide long term Capital appreciation and / or
income distribution from a diversified portfolio of equity and equity related instruments of
companies that are expected to benefit from changing Indian demographics, Indian Lifestyle
and rising consumption pattern. However, there can be no assurance that the investment
objective of the scheme will be achieved.
90
A). INDEX FUND:
1. UTI Master Index Fund (Open Ended Fund):
UTI MIF is an open-ended passive fund with the primary investment objective to invest in
securities of companies comprising the BSE sensex in the same weightage as these
companies have in BSE sensex. The fund strives to minimise performance difference with the
sensex by keeping the tracking error to the minimum.
2. UTI Gold Exchange Traded Fund (Open Ended Fund):
To endeavour to provide returns that, before expenses, closely track the performance and
yield of Gold. However the performance of the scheme may differ from that of the underlying
asset due to racking error. There can be no assurance or guarantee that the investment
objective of UTI-Gold ETF will be achieved.
3. UTI Sunder (Open Ended Fund):
To provide investment returns that, before expenses, closely correspond to the
performance and yield of the basket of securities underlying the S & P CNX Nifty Index.
C). ASSETS FUND:
UTI Variable Investment Scheme:
UTI VIS-ILP is an open ended scheme with the objective of providing the investors with a
product that would enable them to diversify their risks through a suitable allocation between
debt and equity asset classes and thereby generate superior risk-adjusted returns through a
dynamic asset allocation process.
91
D). BALANCED FUND:
1. UTI Mahila Unit Scheme (Open Ended Fund):
To invest in a portfolio of equity/equity related securities and debt and money market
instruments with a view to generate reasonable income with moderate capital appreciation.
The asset allocation will be Debt : Minimum 70%, Maximum 100% Equity : Minimum 0%,
Maximum 30%.
2. UTI Balanced Fund (Open Ended Fund):
An open-ended balanced fund investing between 40% to 75% in equity /equity related
securities and the balance in debt (fixed income securities) with a view to generate regular
income together with capital appreciation.
3. UTI Retirement Benefit Pension Fund (Open Ended Fund):
The objective of the scheme is to provide pension to investors particularly self- employed
persons after they attain the age of 58 years, in the form of periodical cash flow up to the
extent of repurchase value of their holding through a systematic withdrawal plan.
4. UTI Unit Link Insurance Plan (Open Ended Fund):
To provide return through growth in the NAV or through dividend distribution and
reinvestment.
5. UTI CCP (Children Career Plan) Advantage Fund (Open Ended Fund):
An open ended balanced fund with 70-100% investment in Equity. Investment can be made
in the name of the children up to the age of 15 years so as to provide them, after they attain
the age of 18 years, a means to receive scholarship to meet the cost of higher education / or
92
help them in setting up a profession, practice or business or enabling them to set up a home or
finance, the cost of other social obligations.
5. UTI Charitable, Religious Trust And Registered Society (Open Ended Fund):
Open-ended debt oriented Income scheme with an objective of investing not more than 30%
of the funds in equity related instruments and the balance in debt and money market
instruments with low to medium risk profile. The scheme is catering to the Investment needs
of Charitable, Religious and Educational Trusts as well as Registered societies with the goal
of providing regular income.
E). INCOME FUND (DEBT FUND):
1. UTI Bond Fund (Open Ended Fund):
Open-end 100% pure debt fund, which invests in rated corporate debt papers and government
securities with relatively low risk and easy liquidity.
2. UTI Floating Rate Fund STP (Open Ended Fund):
To generate regular income through investment in a portfolio comprising substantially of
floating rate debt / money market instruments and fixed rate debt / money market
instruments.
3. UTI Gilt Advantage Fund LTP (Open Ended Fund):
To generate credit risk-free return through investments in sovereign securities issued the
Central and / or a State Government.
93
4. UTI Gilt Advantage Fund STP (Open Ended Fund):
To generate credit risk-free return through investment in sovereign securities issued the
Central and / or a State Government.
5. UTI G-SEC STP (Open Ended Fund):
An open-end Gilt-Fund with the objective to invest only in Central Government securities
including call money, treasury bills and repos of varying maturities with a view to generate
credit risk free return with a stated objective of maintaining the average maturity of the
portfolio at less than 3 years.
6. UTI G-Sec-Investment Plan (Open Ended Fund):
An open-end Gilt-Fund with the objective to Invests only in Central government securities
including call money, treasury bills and repos of varying maturities with a view to generate
credit risk free return. While selecting the maturity profile of the investment in government
securities the need for maximisation of the returns and meeting of the liquidity requirements
of the scheme is kept in view.
7. UTI Treasury Advantage Fund (Open Ended Fund):
It aims to generate attractive returns consistent with capital preservation and liquidity.
8. UTI Monthly Income Scheme (Open Ended Fund):
This is an open-end debt oriented scheme with no assured returns. The scheme aims at
distributing income, if any, periodically.
94
9. UTI Mix Advantage Plan (Open Ended Fund):
Endeavours to make periodic income distribution to unit holders through investments in fixed
income securities and equity & equity related instruments.
10. UTI Short Term Income Fund (Open Ended Fund):
The Scheme seeks to generate steady & reasonable income with low risk & high level of
liquidity from a portfolio of money market securities & high quality debt.
11. UTI Capital Protection Oriented Scheme (Open Ended Fund):
The investment objective of the scheme is to endeavour to protect the capital by investing in
high quality fixed income securities as the primary objective and generate capital
appreciation by investing in equity and equity related instruments as secondary objective.
F). LIQUID FUND (DEBT FUND):
1. UTI Liquid Cash Plan (Open Ended Fund):
The scheme seeks to generate steady & reasonable income with low risk & high level of
liquidity from a portfolio of money market securities & high quality debt.
2. UTI Money Market Fund (Open Ended Fund):
An open-ended pure debt liquid plan seeking to provide highest possible current income by
investing in a diversified portfolio of short-term money market securities.
95
When started?
RELIANCE MUTUAL FUND
UTI MUTUAL FUND
Established in 1995
Established in 1964
Currently No. 1 company in India.
First Mutual Fund company
in India.
How
they
come
into Registered with SEBI as trust By the UTI act passed by the
business?
under Indian trust Act 1882.
parliament in 1963.
Minimum investment
Rs. 500.0
Rs. 1000.0
Investment
Equity:
Equity:
Bank: 8-15%
Financial service: 16-22%
Software: 8-19%
Energy: 12-18%
Petroleum products: 4-8%
Consumer goods: 08-14%
Pharmaceuticals: 6-10%
Invest in 12-20 sectors which Invest in 7-15 sector which
includes: Auto, Auto Ancillaries, include:
IT,
Telecom,
Finance, Industrial Capital Goods, Automobile,
Cement
Telecom-Services,
Power, Products,
Construction
Hotels, Textile, Metals etc.
Project,
Retailing, Media & Entertainment,
Transportation etc.
96
Derivatives,
Main Funds.
UTI Dividend yield fund,
Reliance Diversified Fund,
UTI Opportunity Fund.
Reliance Equity Opportunity
Fund,
Reliance
regular
saving
funds.
Type of fund offered
Equity fund, Debt Fund, Sector Equity fund, Index fund,
specific fund and Gold exchange Asset fund, Balanced fund,
traded fund.
Numbers
of
Debt fund(Income, Liquid)
schemes 106 schemes.
107 schemes.
offered
Distribution
Is any other venue?
• Online and internet based • Tie-up with Post offices
distribution.
branches.
• Reliance outlets and branches.
• UTI outlets and Branches.
• Life Insurance.
• UTI Bank.
• General Insurance.
• Pan card.
• Broking and distribution.
• Bank Recruitment.
• Consumer Finance.
• ULIP.
• Private Equity.
• Assets Reconstruction.
97
CHAPTER: 6
MUTUAL FUNDS VS. OTHER INVESTMENTS
From investors’ viewpoint mutual funds have several advantages such as:
• Professional management and research to select quality securities.
• Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a
hand full of stocks. The investor is not putting all his eggs in one basket.
• Ability to add funds at set amounts and smaller quantities such as $100 per month
• Ability to take advantage of the stock market which has generally outperformed other
investment in the long run.
• Fund manager are able to buy securities in large quantities thus reducing brokerage fees.
However there are some disadvantages with mutual funds such as:
• The investor must rely on the integrity of the professional fund manager.
• Fund management fees may be unreasonable for the services rendered.
• The fund manager may not pass transaction savings to the investor.
• The fund manager is not liable for poor judgment when the investor's fund loses value.
• There may be too many transactions in the fund resulting in higher fee/cost to the investor This is sometimes call "Churn and Earn".
• Prospectus and Annual report are hard to understand.
98
• Investor may feel a lost of control of his investment dollars.
There may be restrictions on when and how an investor sells/redeems his mutual fund shares.
Company Fixed Deposits versus Mutual Funds:
Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit rating
of the fixed deposit program is an indication of the inherent default risk in the investment.
The moneys of investors in a mutual fund scheme are invested by the AMC in specific
investments under that scheme. These investments are held and managedin-tr us t for the
benefit of scheme’s investors. On the other hand, there is no such direct correlation between a
company’s fixed deposit mobilisation, and the avenues where these resources are deployed.
A corollary of such linkage between mobilisation and investment is that the gains and losses
from the mutual fund scheme entirely flow through to the investors. Therefore, there can be
no certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the
investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is
certain, subject only to the default risk of the borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some
differences:
The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual
funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in the
case of closed-end schemes).
99
The basic value at which fixed deposits are enchased is not subject to a market risk. However,
the value at which units of a scheme are redeemed depends on the market. If securities have
gained in value during the period, then the investor can even earn a return that is higher than
what he anticipated when he invested. But he could also end up with a loss.
Early encashment of fixed deposits is always subject to a penalty charged by the company
that accepted the fixed deposit. Mutual fund schemes also have the option of charging a
penalty on “early” redemption of units (through by way of an ‘exit load’) If the NAV has
appreciated adequately, then even after the exit load, the investor could earn a capital gain on
his investment.
Bank Fixed Deposits verses Mutual Fund:
Bank fixed deposits are similar to company fixed deposits. The major difference is that banks
are generally more stringently regulated than companies. They even operate under stricter
requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
While the above are causes for comfort, bank deposits too are subject to default risk.
However, given the political and economic impact of bank defaults, the government as well
as Reserve Bank of India (RBI) try to ensure that banks do not fail.
Further, bank deposits up to Rs 100,000 are protected by the Deposit Insurance and Credit
Guarantee Corporation (DICGC), so long as the bank has paid the required insurance
premium of 5 paisa per annum for every Rs 100 of deposits. The monetary ceiling of Rs
100,000 is for all the deposits in all the branches of a bank, held by the depositor in the same
capacity and right.
100
BANKS
MUTUAL FUNDS
Returns
Low
Better
Administrative exp.
High
Low
Risk
Low
Moderate
Investment option
Less
More
Network
High penetration
Low but improving
Liquidity
At a cost
Better
Quality of Assets
Not Transparent
Transparent
Interest calculation
Quarterly
Every Month
i.e. 3rd 6th 9th & 12th.
Guarantor
Guarantor is needed.
Guarantor is not needed.
Account
Needed
Not Needed.
Bonds and Debentures versus Mutual Funds:
As in the case of fixed deposits, credit rating of the bond / debenture is an indication of the
inherent default risk in the investment. However, unlike FD, bonds and debentures are
transferable securities.
While an investor may have an early encashment option from the issuer (for instance through
a “put” option), generally liquidity is through a listing in the market.
Implications of this are:
•If the security does not get traded in the market, then the liquidity remains on paper. In this
respect, an open-end scheme offering continuous sale / re-purchase option is superior.
101
• The value that the investor would realise in an early exit is subject to market risk. The
investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme.
It is possible for a professional investor to earn attractive returns by directly investing in the
debt market, and actively managing the positions. Given the market realities in India, it is
difficult for most investors to actively manage their debt portfolio. Further, at times, it is
difficult to execute trades in the debt market even when the transaction size is as high as Rs 1
crore. In this respect, investment in a debt scheme would be beneficial.
Debt securities could be backed by a hypothecation or mortgage of identified fixed and / or
current assets (secured bonds / debentures). In such a case, if there is a default, the identified
assets become available for meeting redemption requirements. An unsecured bond /
debenture is for all practical purposes like a fixed deposit, as far as access to assets is
concerned. The investments of a mutual fund scheme are held by a custodian for the benefit
of investors in the scheme. Thus, the securities that relate to a scheme are ring-fenced for the
benefit of its investors.
Advantages of Mutual Funds over Stocks:
• A mutual fund offers a great deal of diversification starting with the very first dollar
invested, because a mutual fund may own tens or hundreds of different securities. This
diversification helps reduce the risk of loss because even if any one holding tanks, the overall
value doesn't drop by much. If you're buying individual stocks, you can't get much diversity
unless you have $10K or so.
• Small sums of money get you much further in mutual funds than in stocks. First, you can set
up an automatic investment plan with many fund companies that lets you put in as little as
$50 per month. Second, the commissions for stock purchases will be higher than the cost of
102
buying no-load fund (Of course, the fund's various expenses like commissions are already
taken out of the NAV). Smaller sized purchases of stocks will have relatively high
commissions on a percentage basis, although with the $10 trade becoming common, this is a
bit less of a concern than it once was.
• You can exit a fund without getting caught on the bid/ask spread.
• Funds provide a cheap and easy method for reinvesting dividends.
• Last but most certainly not least, when you buy a fund you're in essence hiring a
professional to manage your money for you. That professional is (presumably) monitor in the
economy and the markets to adjust the fund's holdings appropriately.
Advantages of Stock over Mutual Funds:
•The opposite of the diversification issue: If you own just one stock and it doubles, you are
up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other hand, if
you own just one stock and it drops in half, you are down 50% but the mutual fund is down
1%. Cuts both ways.
• If you hold your stocks several years, you aren't nicked a 1% or so management fee every
year (although some brokerage firms charge if there aren't enough trades).
• You can take your profits when you want to and won't inadvertently buy a tax liability.
(This refers to the common practice among funds of distributing capital gains around
November or December of each year. See the article elsewhere in this FAQ for more details.)
•You can do a covered write option strategy. (See the article on options on stocks for more
details.)
103
• You can structure your portfolio differently from any existing mutual fund portfolio.
(Although with the current universe of funds I'm not certain what could possibly be missing
out there!)
• You can buy smaller cap stocks which aren't suitable for mutual funds to invest in.
• You have a potential profit opportunity by shorting stocks. (You cannot, in general, short
mutual funds.)
• The argument is offered that the funds have a "herd" mentality and they all end up owning
the same stocks. You may be able to pick stocks better.
Life Insurance versus Mutual Fund:
Life insurance is a hedge against risk – and not really an investment option. So, it would be
wrong to compare life insurance against any other financial product.
Occasionally on account of market inefficiencies or miss-pricing of products in India, life
insurance products have offered a return that is higher than a comparable “safe” fixed return
security – thus, you are effectively paid for getting insured! Such opportunities are not
sustainable in the long run.
104
CHAPTER: 7
FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA
_______________________________________________________
Financial experts believe that the future of Mutual Funds in India will be very bright. It has
been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs
40,90,000 crore, taking into account the total assets of the Indian commercial banks. In the
coming 10 years the annual composite growth rate is expected to go up by 13.4%.
• 100% growth in the last 6 years.
• Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having more than 800.
There is a big scope for expansion.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rural like the Indian insurance industry with simple and limited
products.
• SEBI allowing the MF's to launch commodity mutual funds.
105
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.
Looking at the past developments and combining it with the current trends it can be
concluded that the future of Mutual Funds in India has lot of positive things to offer to its
investors.
106
CHAPTER: 8
MUTUAL FUND JARGON
_______________________________________________________
Net Asset Value (NAV):
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per
unit NAV is the net asset value of the scheme divided by the number of units outstanding on
the Valuation Date.
Sale Price: Sale price is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.
Repurchase Price:
Is the price at which a close-ended scheme repurchases its units and it may include a backend load. This is also called Bid Price.
Redemption Price:
It is the price at which open-ended schemes repurchase their units and close-ended schemes
redeem their units on maturity. Such prices are NAV related.
Sales Load: It is a charge collected by a scheme when it sells the units. Also called as ‘Frontend’ load. Schemes that do not charge a load are called ‘No Load’ schemes.
Repurchase or ‘Back-end’ Load:
It is a charge collected by a scheme when it buys back the units from the unit holders.
107
CHAPTER: 9
RESEARCH METHODOLOGY
Research as a care full investigation or enquiry especially through search for a new facts in
any branch of knowledge” Research is an academic activity and such as the term should be
used in technical sense. The manipulation of things , concepts or symbols for the purpose of
generalizing to extend ,correct
or verify knowledge ,whether that
knowledge through
objective.
ANALYTICAL RESERCH:
In this project work, analytical research is used. In this project has to use facts or information
.Already used available, and analyze these to make a critical evolution of the material.
METHODS OF DATA COLLECTION:
In this project work primary and secondary data sources of data has been used.
Primary data: Primary data collect through observation, or through direct communication or
doing experiments.
108
Secondary data: Secondary data means already available through books, journals,
magazines, newspaper.
ANALYSIS: For the proper analysis of data Quantitative Technique such as percentage
method was used.
109
DATA ANALYSIS AND INTERPRETATION:
Q.1 Which banking mutual fund do you prefer for mutual Fund?
Company Name
Percentages of respondents
Reliance Money
25
Other
10
UTI
15
25
20
15
10
5
0
Reliance
Other
UTI
INTERPRETATION: 50% of respondent have Reliance Money, 30% of respondent have
UTI and 20% others.
110
Q.2 Which banking mutual fund offer you good investment plan?
Company Name
Percentage of respondent
Reliance
22
Other
21
UTI
7
25
20
15
10
5
0
RELIANCE
Other
UTI
INTERPRETATION: 44% respondent for Reliance, 32 % for other, 14% for UTI.
111
Q.3 Which banking mutual fund offer a lot of tax saving?
Company Name
Percentage of respondent
Reliance
20
Other
15
UTI
15
20
18
16
14
12
10
8
6
4
2
0
Reliance
Other
UTI
INTERPRETATION: 40% respondent for Reliance, 30%for UTI, 30% for other.
112
Q.4 which banking mutual fund offers you a large number of product & services?
Company Name
Percentage of respondent
Reliance
18
Other
16
UTI
16
18
17.5
17
16.5
16
15.5
15
Reliance
Other
UTI
INTERPRETATION: 36% respondent for Reliance, 32%for UTI and 32% for other.
113
Q.5 Which banking mutual fund offer you a good e-mail facility?
Company Name
Percentage of respondent
Reliance
22
Other
15
UTI
13
25
20
15
10
5
0
Reliance
Other
UTI
INTERPRETATION: 44% respondent for Reliance, 30% for other and 26% UTI.
114
Conclusion Represented by pie chart:
UTI
29%
Other
30%
115
Reliance
41%
CHAPTER: 10
FINDINGS AND SUGGESTION
FINDINGS:
In Equity Schemes we have taken Reliance Vision Fund and Reliance growth Fund. Both
schemes are open ended but Reliance Growth fund is more valuable for Reliance Mutual
Fund than reliance vision Fund.
In Dedt scheme we have taken Reliance money Manager Fund and Reliance Liquidity Fund
.In it both schemes are open ended but reliance money manager is more beneficial for
reliance mutual fund.
In sector specific scheme we have taken Reliance media and entertainment fund and Reliance
Pharma fund scheme both is more efficient for Reliance Mutual Fund.
Above all the schemes of Reliance Mutual Fund Debt schemes are best schemes for Mutual
Fund. There is a Good investment plan and saving scheme in reliance Mutual Fund.
116
SUGGESTION:

Reliance Money and UTI have to add some extra features in it with aggressive
marketing promotional strategy.

Advertisement on television is the main source of attraction so the company must
advertise its products heavily.

Product must be improved.

There should be provision of complain suggestion boxes at each branch.
117
CONCLUSION:
• Mutual Fund investment is better than other raising fund.
• Reliance Mutual Fund have good returns in investment.
• A good brand is always welcomed over here people are more aware and conscious for the
brand so they go for they are ready to spend some extra bucks for the quality.
• At last all cons are concluded by that Reliance Money is still growing industry in India and
is still exploring its potential and prospects in here.
LIMITATIONS:
• The time constraint was one of the major problems.
• The study is limited to the different schemes available under the mutual funds selected.
• The study is limited to selected mutual fund schemes.
• The lack of information sources for the analysis part.
118
CHAPTER: 11
CONCLUSION
_______________________________________________________
Mutual Funds now represent perhaps most appropriate investment opportunity for most
investors. As financial markets become more sophisticated and complex, investors need a
financial intermediary who provides the required knowledge and professional expertise on
successful investing. As the investor always try to maximize the returns and minimize the
risk. Mutual fund satisfies these requirements by providing attractive returns with affordable
risks. The fund industry has already overtaken the banking industry, more funds being under
mutual fund management than deposited with banks. With the emergence of tough
competition in this sector mutual funds are launching a variety of schemes which caters to the
requirement of the particular class of investors. Risk takers for getting capital appreciation
should invest in growth, equity schemes. Investors who are in need of regular income should
invest in income plans.
The stock market has been rising for over three years now. This in turn has not only protected
the money invested in funds but has also to help grow these investments.
This has also instilled greater confidence among fund investors who are investing more into
the market through the MF route than ever before.
Reliance India mutual funds provide major benefits to a common man who wants to make his
life better than previous.
119
India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the
mutual fund industry as a whole gets less than 2 per cent of household savings against the 46
per cent that go into bank deposits. Some fund managers say this only indicates the sector's
potential. "If mutual funds succeed in chipping away at bank deposits, even a triple digit
growth is possible over the next few years.
120
CHAPTER: 12
QUESTIONNAIRE
Name: _________________
Age: ______
Occupation: ____________.
Q.1 which banking mutual fund do you prefer for mutual Fund?

Reliance Money

UTI

OTHER
Q.2 Which banking mutual fund offer you good investment plan?

Reliance Money

UTI

OTHER
Q.3 Which banking mutual fund offer a lot of tax saving?

Reliance Money

UTI

OTHER
121
Q.4 Which banking mutual fund offers you a large number of product & services?

Reliance Money

UTI

OTHER
Q.5 which banking mutual fund offers you a good e-mail facility?

Reliance Money

UTI

OTHER
122
CHAPTER: 13
BIBLIOGRAPHY
__________________________________________________________________________
REFERENCE BOOK:
• FINANCIAL MARKET AND SERVICES- Gordon and Natarajan.
• INVESTMENT MANAGEMENT - V.K.BHALLA
• Research Methodology – Kothari.
WEBSITE:
• www.mutualfundindia.com
• www.indiamarkets.com
• www.utimf.com
• www.reliancemutual.com
• www.amfiindia.com
• www.karvy.com
• www.sebi.gov.in
• www.moneycontrol.com
123
MAGAZINES:
• Business Today
• Business Standard
• AMFI Journal
• Mutual Fund Quarterly Report.
124
125
Download

a study on mutual fund companies in india with special reference to